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Weekly Roberts Market Report

06 December 2012

Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University

US - Corn trading was lackluster amid quiet volume. Some commercial selling was noted on spreading, writes Michael T. Roberts.

Risk Management Term of the Week: - ARBITRAGE - Actions taken in response to an apparent profit opportunity due to market imbalances. An example would be buying in the cash market and delivering in the futures market because the futures market appears to be unusually high relative to the cash market.

Risk Management Principle of the week: Fundamental and technical analysis of the markets can be complimentary. The need is for understanding of the basic forces of supply and demand (fundamental analysis) and the related ability to anticipate the direction of price trends (technical or chart analysis). Highly sophisticated quantitative analysis is nice but NOT essential to developing a good marketing plan.

LEAN HOGS on the CME finished down on Monday. The DEC’12LH contract closed at $83.925/cwt; down $0.150/cwt but $1.450/cwt higher than last report. APR’13LH futures closed at $90.675/cwt; down $1.100/cwt and $0.825/cwt lower than a week ago. The JUN’13LH contract closed at $100.900/cwt; down $0.625/cwt but $0.050/cwt over last report. After starting strong, US lean hog futures finished lower but not until breaking through highs. Chart signals indicate this will continue in the near term. Fundamentally hog demand was steady-to-firm last week reflected in rising US wholesale prices and a strong cash market as retailers built stocks prior to the Christmas holidays. Stocks are tightening. Late Monday USDA put the lean pork cutout at $85.76/cwt, up $0.98/cwt and $3.42/cwt over last report. According to HedgersEdge.com, the average packer margin was lowered $8.15/head to a positive $0.60/head based on the average buy of $61.09/cwt vs. the breakeven of $60.86/cwt. The latest CME Lean Hog index was estimated at 81.52; up 1.21 and 3.64 higher than last report.


This table shows the maximum price a producer could pay for feeder pigs and still break even, assuming the costs and conversion/performance factors listed above. Producers should remain aware that calculations are based on averages. Courtesy DTN.
DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed down on Monday. The NOV’12DA contract closed at $20.78/cwt; down $0.02/cwt but $0.06/cwt higher than a week ago. DEC’12DA futures closed at $18.58/cwt; off $0.16/cwt and $0.50/cwt lower than last week. The MAR’13DA contract closed at $18.73/cwt; down $0.05/cwt but $0.26/cwt over last report. Federal Order prices are due out on Wednesday. Fundamental, technical, and seasonal signals indicate further price erosion. Current milk supply is sufficient with excess in some areas being moved to deficit ones. School holidays will slacken demand in the near-term. Cash cheese prices attracted some fluid supply. According to USDA cheese production is up 2.8 per cent over September and 3.2 per cent higher than this time last year. Butter production was slightly ahead of last year at this time placed at 146.00 m lbs. Cream supply should tighten amid continued churning. Seasonal demand is expected to be brisk during the holidays. Class III futures were: 3 months out = $19.32/cwt ($0.15/cwt lower than last report); 6 months out = $19.00/cwt ($0.03/cwt higher than a week ago); 9 months out = $18.89/cwt ($0.09/cwt higher than last Monday); and 12 months out = $18.79/cwt ($0.0910/cwt over last report). This week the variable cost of production for the average North Carolina conventional 200 cow dairy with a 23,000 lb average is $21.81/cwt; $3.64/cwt lower than last Monday. The price sensitivity table below illustrates different returns/cow relative to varying increases and decreases to both milk prices and inputs costs over total Variable Costs for the same NC farm.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday with the exception of the December 2013. DEC’12LC futures closed at $127.000/cwt; up $0.275/cwt but $1.400/cwt lower than last report. APR’13LC futures closed at $134.850/cwt; down $0.275/cwt and $1.000/cwt lower than a week ago. The AUG’13LC contract closed at $130.750/cwt; up $0.625/cwt but $0.9525/cwt lower than a week ago. Trading sources said Monday went against expectations for weakening beef demand after cash prices rose after noon. Most of last week prices weakened on declining wholesale prices. Fundamentally demand is stable but supply is shrinking, as evidenced by smaller-than-expected showlists. Technically signs were supportive. Profit-taking held prices in check. Packer margins were noted more negatively this week. According to HedgersEdge.com, the average packer margin was lowered $26.75/head to a negative $82.95/head based on the average buy of $127.50/cwt vs. the breakeven of $120.95/cwt. Monday afternoon USDA put the 5-area average at $125.85/cwt $1.59/cwt under last report. Please see graph:

Late Monday USDA put wholesale boxed beef at $195.32; up $0.29/cwt but $0.79/cwt lower than a week ago. Cash markets were quiet amid steady prices and are expected to remain that way all week.

FEEDER CATTLE at the CME finished mixed on Monday. JAN’13FC futures closed at $145.600/cwt; off $0.025 and $2.75/cwt lower than a week ago. APR’13FC futures closed at $149.825/cwt; down $0.10/cwt and $1.725/cwt lower than last week. The AUG’13FC contract closed at $156.600/cwt; up $0.600/cwt but $0.025/cwt lower than last report. Despite seasonal price pressures and volatile corn prices buyers were in the hunt on Monday. For Monday 12.04.12 estimated receipts at the closely watched Oklahoma City market were put at 10,000 head vs. last week’s 6,085 head and 7,577 head this time last year. Compared to last week feeder steers were $1.00/cwt higher and feeder heifers were $2.00/cwt higher. Calves were $4.00-$6.00 higher. Demand was light-to-moderate for calves. Quality was plain through attractive. Weather continues to be the major driver of demand.


This table shows the maximum price a producer could pay for feeder cattle and still break even, assuming the costs and conversion/performance factors listed above. Producers should remain aware that calculations are based on averages. Courtesy DTN.

The CME feeder cattle livestock index was placed at 145.60; down 0.64 but 0.92 over last report. Please see chart:

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